The Burden of Disclosure: What You Do Know Can Hurt You

Read this original blog post by Lab Fellow Sunita Sah discussing her article, "The Burden of Disclosure: Increased Compliance with Distrusted Advice." The article is forthcoming in the Journal of Personality and Social Psychology, the journal of the American Psychological Association and the highest-impact empirical journal in the field.

Disclosure is commonly proposed as a solution to conflicts of interest. In the financial industry, disclosure is advocated as an important rule. Across countries, the Securities and Exchange Commission (SEC), the Financial Services Authority (UK), and the Autorité Des Marchés Financiers AMF (France) all commend disclosure. In medicine, in the US alone, the American Medical Association, the Medicare Payment Advisory Committee, and the 2010 Patient Protection and Affordable Care Act, all endorse disclosure as an important component in dealing with conflicts of interest. Disclosure is popular because it is perceived to work; the fuller the disclosure, the better. For consumers, disclosure is anticipated to act as a warning alerting them to their advisor’s potential biases in the hope that they will be able to adjust the advice accordingly.

Seeking out disclosures, however, may not be as attractive as it sounds, and it may even backfire. Over six experiments, I found that even though disclosure decreased advisees’ trust in the advice, it also caused increased pressure on advisees to comply with their advisor’s recommendation. The increased pressure occurs because, instead of disclosure communicating only information about the conflict of interest, it also communicated how consumers could help their advisor. More importantly, it communicated, and made salient, that not taking the recommendation would not help their advisors. Imagine, for example, your financial advisor saying to you, “I highly recommend this fund for you. However, I must disclose that I will receive a commission if you invest in this fund.” Consumers are now more likely to feel greater discomfort in rejecting the recommended fund than they would if the same recommendation was given without disclosure. Disclosure has become tantamount to a favor request.

The compliance pressure that comes with disclosure is not motivated by altruism, but rather by reluctance to appear unwilling to help the advisor once the advisor’s interests are publicly disclosed. In my experiments, the burden of disclosure was significantly reduced (i.e., advisees were far less likely to follow advisors’ biased recommendations) when the disclosure was secretly provided by an external source rather than directly from the advisor, suggesting that it is the common knowledge of the disclosed interests (not merely the advisee’s knowledge of those interests) that creates pressure to satisfy them.

Other remedies that were effective in significantly reducing advisees’ tendency to comply with biased advice were if advisees could make their decision in private or had an opportunity to change their mind. This suggests that cooling off periods for investment, medical, or other important decisions, will be beneficial for advisees who hear about their advisor’s conflict of interest directly from their advisor.

These findings show that people experience conflicting emotions when receiving disclosure of a conflict of interest from an advisor. Trust is central to advice-taking, yet compliance can occur in the absence of trust. Advisees are simultaneously aware that the advice is likely to be biased and trust it less, yet feel increased pressure to comply with the advice. Instead of a warning, disclosure can become a burdensome request to comply with advice that is trusted less.